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Boeing Weighs Finance-Unit Move

By

J. Lynn LunsfordStaff Reporter of THE WALL STREET JOURNAL

Updated Jan. 16, 2004 12:01 a.m. ET

Two months after deciding to retreat from financing anything other than its own aerospace products,
Boeing Co.
said it is considering what to do with its $2.3 billion commercial-equipment financing portfolio, including selling it.

The commercial portfolio, which includes heavy equipment such as ships, drilling rigs and precision-manufacturing machinery, represents about 19% of the $12.2 billion in assets of its Boeing Capital Corp. unit. Boeing hired Credit Suisse Group's Credit Suisse First Boston LLC to explore "strategic options" for the portfolio.

The move was expected after Boeing announced in November that it was abandoning its once-ambitions plans to develop Boeing Capital into a commercial-financing company rivaling that of General Electric Co.'s financing unit.

People familiar with discussions inside the company said the slump in commercial aviation had put a greater-than-expected strain on the company's cash flow at a time when Boeing is beginning to ramp up research and development on a new super-efficient jetliner, as well as a number of military programs. Company officials said they had concluded that becoming truly competitive in the commercial-financing arena would have required investing several billion more dollars that Boeing could ill afford to divert from its core operations.

Walt Skowronski, president of Boeing Capital, said in a statement that even though the commercial-finance business had been profitable for Boeing, "it is not at the core of our strategic focus." Besides selling the assets to other financing companies, Boeing is considering the sale of the commercial-financing operation itself, or a phased "wind-down" of the existing portfolio.

The company said that by September, it planned to relocate most of its commercial-finance operations from Long Beach, Calif., to its headquarters in Renton, Wash. About 90 employees will be affected.

Boeing Capital, which traces its roots to the old McDonnell Douglas financing arm, was split off into its own business unit three years ago. At the time, executives predicted that by going outside its traditional role of in-house financing, Boeing could reap profits from other types of commercial financing.